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Wednesday, June 28th Trade Ideas

Summary

How I think TQQQ, PANW, ORLY, XIV, and GLD will react tomorrow

How I plan to trade them

Analysis of recent events and prediction for future profit

TQQQ

Nasdaq sold off today (June 27 th) as a result of high growth (some profit taking), Googles $2.7 billion Europe fee, Trump’s visa restrictions policy, to some extent the ransomware, and healthcare delay to top it off and push the market lower. Aside from this, there’s no fundamental shift to push Nasdaq below it’s MA(50) and daily support level. 

 In short, I believe that market will continue to seek the growth that the tech sector, as a whole, can provide and day traders will be eager to take advantage of the critical and evident support levels.

How to Trade:

I think that although Nasdaq may open slightly down, or flat, TQQQ will show strength from open. Therefore, it’s likely to assume that TQQQ opens up higher with a gap. If that’s the case, traders will take profit and Nasdaq and TQQQ will converge, the more nasdaq is recovering, the more profit taking in TQQQ, at least initially. So, if nasdaq is about flat and TQQQ is up, wait for TQQQ to drop a little and recover open gap, then get in as Nasdaq continues to climb higher. In this case have most of my capital allocated to day trading the technical and a little as a swing trade perhaps QQQ (or PANW, but more on that later).

Scenario 2 - Nasdaq and TQQQ open higher: If they both open higher, I may be eager to get into TQQQ because of greed. Avoid that. Remember that people will take short term profit, and then try to get in if Nasdaq hold critical support levels. If market confidence comes back, it should keep climbing higher throughout the day as more investors flock to buy the stock that held support.

Scenario 3: Nasdaq continues to drop lower, as does TQQQ. In this particular case it’s important to understand the reason behind the decline. If Nasdaq falls because US markets get sold off abroad, investors might get spooked by the dip below resistance and short, stop losses will be triggered, and markets will continue to decline for no real reason, which is fine, but there typically needs to be some fundamental change for indexes to break MA(50) levels. This will allow me to buy medium-term investments that should outperform at support levels (such as PANW and ORLY/AZO). I will buy these in large chunks as an alternative to day trade capital and sell a portion of them as they reach resistance and yield profit. This case is likely as foreign markets are currently falling, particularly Asia. In that case, volatile stocks such as TQQQ may not recover with the same confidence as market indexes as is usually the case after a critical support level is broken. So, only engage if market eagerly buys the dip (as these particular Asian troubles shouldn’t worry US investors)

In short, get ready to spend about $10,000-$15,000 to trade/long tech. More allocation to trade if market holds critical levels and less toward long/medium term trades such as PANW.

PANW

PANW is an investment/trade that makes sense. If tech improves tomorrow (or when it improves, even if tomorrow is a temporary dip below support) investors will look for a growth/value bargain after the tech sell off. The daily pattern for PANW doesn’t reveal much:

 With some support from MA(200), but nothing to count on. The weekly chart, however, paints a very different picture:

PANW is currently at weekly resistance levels, with both the MA(50) and pivotal resistance holding it down. Typically, index sell-offs favor the shorts, who bet that a stock would bounce off these critical resistance levels and head lower. But PANW has a fundamental reason to push through this resistance higher. For one, ransomware issues (taking investors out of bitcoin and to another investment) that recently occurred and are the talk of many tv stations (CNBC, Bloomberg) pointing investors, who are awaiting confirmation that market will hold resistance, in the right direction. This wave of buys and tech market recovery should push PANW higher above the resistance and will now become a strong support, making it a great trade and a good investment. Additionally, although their recent earnings report missed EPS estimates by 25% the stock surged on June 1 st and held the gap, substantiating the technical case for strength.

How to Trade:

If markets recover tomorrow, which is likely, buy a good chunk of PANW and hold it till it breaks resistance. If it struggles to break it while market rallies, it’s a red flag and get out if stock movement continues to surprise. The most I’ll allocate to tech trade for tomorrow is $15,000. An initial $8,000 entry to TQQQ if conditions are ideal, and additional inputs of $3,000-4,000 as movement confirms prognosis. Along with the tech trade, which is mostly short-term, PANW will be medium term. About $8,000-10,000 will be allocated to that if nothing else (ORLY, gold, XIV) is going on.

ORLY

ORLY should be another security to be bought as market recovers. It held it’s support very well, definitely oversold, and has upside potential as cars whether consumers like it or not, need to be repaired. Amazon can steal business, but many who have cars rely on professional advice/service, making them come to the stores. However, investors seem to be cautious and no clear turnaround in sentiment occurred. I believe it should hold the $220 level because all shorts already profited, earnings report isn’t coming up soon, and investors already got out. Could be another bargain that gets a boost.

I would play this only if the chart/technical moves support a turnaround. That is – it holds support levels and doesn’t get sold off during times of panic, like today. Still need to further research this prognosis and therefore any activity in ORLY will have to be small and based on technical patterns.

 XIV

^VIX made 11% today as stocks sold off, and while stocks are at strong support levels, ^VIX is at resistance levels. So it’s likely that market recovers, and VIX continues to slide. If so, a small position in XIV is a good way to spread risk amongst market as a whole, not just betting on nasdaq. Usually XIV is a little slow to pick up, it’s not near any critical support levels, on the contrary, its near resistance, therefore the upside isn’t so great, but still existent. About $2,000 is a good trade if technical movements are flawless. Other than that stick to other, more likely/lucrative trades such as PANW and TQQQ.

Gold (UGLD/NUGT)

Gold held its gains, as well as the lower levels of its upward trend and a clever entry opportunity could show itself. As gold is approaching critical long-term (weekly) and short term (daily) MA(50) resistance levels, it’s not entirely clear which direction the overall trend is. However, gold has been pushing up higher ever since it’s bottom in December against all headwinds (3 rate hikes). The dollar, on the other hand, continues to decline from it’s MA(50). The reason gold was a little slow to grow recently was because ^TNX yields jumped (almost 3% today). And the reason they surged (holding down gold) is because of Draghis ECB announcement, which at this point is just rumors/talk. If confidence in Trumps promises is eroded, or if geopolitical tensions continue to escalate (Syria chemical attacks, North Korea missile testing) gold will have a kick to push it above resistance and continue its uptrend higher.

Therefore, the way to play gold would be to stay put until investor’s nature reveals itself. Perhaps adding small amounts to the position as it’s pushing higher before next week’s employment situation. Gold is currently up after hours as dollar edges lower. 

Oil 

Oil rallied 2%+ today mostly due to technical support and “hopes” of a decrease in the inventory report tomorrow that stems from July 4 th travel. Oil is currently down in after-hours as investors are second-guessing the decrease in inventories. So after the report comes out, it could either push oil higher and strengthen the current level as a floor (support) or push it lower as investors abandon hopes and cause it to dip into the $30’s. For now, the plan is to speculate oil and get a feel for the behavioral consensus.